Growing Pains

Booming Indian market still has a lot of supply chain work to do


India spends approximately 13 percent of its GDP on logistics; only China (18 percent) and Thailand (16 percent) spend more. The report goes on to say, “Though India spends a lower proportion of supply chain costs on transportation, the multiple stocking tiers in a typical Indian distribution system require higher costs be spent on inventory and warehousing. Where transportation costs in the U.S. are fairly evenly distributed between driver, fuel and equipment costs; fuel accounts for the maximum transportation cost in India.

“The poor road infrastructure in India also results in high surface freight costs while unpredictability, poor forecasting, limited technology and distribution tiers proliferation results in higher than average inventory days.”

APL’s Frenzel adds, “Lead time is long, especially on trucks. In some of the states, the speed averages 12 miles per hour on the roads. Unfortunately, you need more inventory in the networks and more sites than if you had better transportation options. There is also potential for damage to your goods on the roads.”

There are positive signs, he says. “The congestion is in the major metro areas and even across the network; it’s the size and quality of the roads, but there are improvements. There are investments in ports, highways, railroads. There is a positive story to be told.”

Rail is becoming an attractive alternative. “It can [result in] smoother, higher quality moves and is a real opportunity to avoid congestion,” Frenzel says. “It’s healthy to consider rail along with trucks in your mix.”

Again, 3PLs are playing a part. APL Logistics has begun what it calls IndiaLinx, its rail operations arm in the country. IndiaLinx is a joint venture between Neptune Orient Lines subsidiary APL Logistics and Hindustan Infrastructure Projects & Engineering, which, owns and operates 18 weekly rail services between India’s west coast ports and inland rail terminals. APL Logistics is offering double-stack container service in India and plans to expand its service as more rail corridors are approved for stack trains.

Following the government-owned Indian Railway’s decision to allow double-stacking on the corridor, the first run involved the stacking of 90 40-food containers on a train from the Port of Mundra to an inland container rail terminal near Delhi, according to The Hindu Business Line. The government plans to provide a freight rail system with double-stack capacity between key ports and North Indian industrial centers by the end of 2016.

To revitalize the ports, Frenzel says, the Indian government plans major investments that will triple the country’s cargo handling capacity at 12 major ports, with the goal of being able to handle 3 billion tons per year by 2020.

A taxing problem

India has a very complex taxing structure. Products are typically taxed twice, says the Deloitte report, once by the central government (Central Sales Tax) and then by the respective stage governments.

Help, however, is on the way. A long-debated and talked about solution is the Goods and Service Tax (GST), which was originally presented in 2009 and scheduled to take effect in April 2010, then in January of this year. The latest target date is April 1, 2012.

Its implementation will abolish a number of other taxes, including the Central Sales Tax, state-level sales tax, entry tax, stamp duty, telecom license fees, tax on consumption or sale of electricity, transportation of goods and more.

Estimates are that India will gain $15 billion a year by implementing the GST because it would promote exports, raise employment and boost growth, as well as dividing the tax burden equitably between manufacturing and services.

“The prospect of GST going into effect can be positive,” Frenzel explains. It’s based on logistics rather than tax factors and creates a uniform common market across India.”

Takeaways:

  • Traditional methods of supply chain design and management do not always apply
  • Roads, rails and ports are all a challenge to economic growth
  • Revision is coming for a complex taxation system
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